The Coming Disaster: 4 Reasons the Affordable Care Act is Poised to Crush Small Employers in 2014

by Gregg Kennerly | Published Wednesday, March 12, 2014

The Coming Disaster: 4 Reasons the Affordable Care Act is Poised to Crush Small Employers in 2014

By: Gregg Kennerly

“Socializing” of rates- young can’t afford

Guarantee Issue causes “Healthy People” get a raw deal.

Mandated “Essential Benefits” add significant cost to plans.

Administrative Burden- no composite rates- one year age bands

December 1, 2014 is Nuclear Meltdown Day. Approximately 50% of Virginia businesses changed their contract date to 12/1.

Even as many of the regulations of the ACA (ObamaCare) are finalized, changes and delays in many other provisions continue to be made almost daily. Unfortunately, the changes being made don’t address the disaster in costs set to hit small employers in the fourth quarter of 2014. As most in our industry know, the major provisions of the ACA become effective for employer plans on the first renewal date in 2014. In response, major Health Plans offered policyholders early renewals for 12/1/2013, that would allow small businesses to avoid the impact of the ACA until 12/1/2014, along with giving themselves more time to get plans and systems updated.

The results of the early renewal offer were astounding! Reports from Anthem Blue Cross and Optima Health Plan are that well over 15,000 businesses in the Commonwealth elected to renew 12/1/2014. This has created unprecedented administrative delays and mistakes due to the burden of renewing 15,000 employer plans all at once. This has also created the coming disaster of huge rate increases for the same 15,000+ employers.

Although small employers with less than 50 employees are not subject to the Employer Mandate, the rating rules of the ACA have a dramatic impact on the way rates are set for small employees.

The top four reasons most small employers will get large rate increases in 2014 are:

The ACA essentially “socializes” health rates. This means there is no gender rating, and age rating is much less pronounced. Young males will pay about 2X their current rates, on average, and the spread allowed between youngest and oldest is compressed from about 7:1 to 3:1. The effect of this is very large on young people, with the difference in the older age rates being loaded into the rates for younger ages. We have seen rate increases of up to 84% on employer plans with a high percentage of young males. This would seem to be at odds with the goal of trying to get younger people to purchase health insurance.

No medical underwriting. Rates for employer-sponsored health plans may no longer be based on the health of the employees in the plan. Everyone pays the same age-based rate in a given area (tobacco rating is still allowed). Groups that have had good claim experience have low rates based on the group being healthier than average. The rates for these groups are increasing dramatically due to the “socialization” of the rates and the loss of their “healthy group” discount. Is this fair to people who take care of themselves and try to make healthy choices?

Mandated “Essential Benefits” add significant cost to the plans offered in compliance with the ACA. People are not free to determine what coverage they need. Every health plan offered must include coverage and rates for mandated benefits such as maternity and pediatric dental coverage regardless of whether an individual can use the benefit. Single 18 year old males are paying for maternity and pediatric dental coverage whether they have children or not.

Under the ACA, plans for employers with less than 50 employees must be rated in one-year age increments and can’t be “composite” or average rated. The administrative burden for employers under this type of rating is skyrocketing as huge multi-page rate matrixes are required to determine rates for employees at every age, for every possible combination of dependents. Setting contribution levels and payroll records for contributions will be much more labor intensive.

Summary: Tens of thousands of Virginia employers will experience huge rate increases to their health plans in the fourth quarter of 2014 as a result of the provisions of the Affordable Care Act. The impact on the horizon in the fourth quarter is caused by a majority of employers electing to renew their contracts at the end of 2013 to delay ACA changes until December 1, 2014. I anticipate a significant revolt against the ACA by employers and political pressure from opponents of the law for significant changes in the ACA.

Gregg Kennerly is a Principal with Advanced Benefit Strategies of Virginia (ABS). ABS is an employee benefits brokerage and consulting firm specializing in helping clients understand and comply with the provisions of the Affordable Care Act.

In his career, Gregg has developed specialized expertise in “consumer-driven” and high deductible health plans with HSA and HRA strategies, and sold the first HSA plans issued in Virginia through Assurant Health. He is an expert in analyzing plan design data and has served as account executive for national accounts such as Coca-Cola Enterprises and Tenet HealthCare. Gregg utilizes a strategic approach to establish goals based on each client’s unique culture and competitive environment, and measuring results against jointly established criteria.
Gregg Kennerly is a Principal at Advanced Benefit Strategies of Virginia, LLC.

Contact Info

Advanced Benefit Strategies of Virginia, LLC

Gregg Kennerly, Principal

Andrea Eggleston, Principal

Karen Bolstad, Senior Operations Director

Carol Watson, Senior Account Executive

Testimonials

The Virginia Beach SPCA has worked with Andrea and Gregg at ABS for over 4 years now, and they have always been available to give our employees personal attention when needed. Three years ago, when we were facing a huge rate increase, Andrea implemented an HRA strategy that saved us over 20% and preserved our ability to offer an excellent medical plan to our employees.

They have always recommended what is in the best interest of our organization and employees. We enjoy working with them and the innovative options they recommended have saved us thousands of dollars.

They have consistently gone beyond expectations to meet the individual needs and answer questions from our employees. As a non-profit organization solely supported by donors, we have to be very frugal with benefits and yet we want our employees to have health insurance. ABS has made that possible for us.

The U.S. Department of Labor (DOL) has adopted the primary beneficiary test for determining whether interns of for-profit employers count as employees under the federal Fair Labor Standards Act (FLSA). The FLSA […]